Insolvency uses shame to rehabilitate the bankrupt by making their financial sins a matter of public record, writes Tainui Stephens. But it had little effect on him. His lesson in shame came from being short of a 20-cent piece.
For decades, Dad was a boom-and-bust businessman in the shark-infested waters of Aussie commercial real estate. He once said to me: “Son, never be afraid of your third bankruptcy!” I laughed. I wasn’t in a dodgy industry like his and didn’t anticipate bankruptcy.
Anyone I knew who’d been bankrupted seemed diminished by the experience. It was often because of some disastrous business decision. After the fall, they’d drop out of sight for a long while. Most ended up in less demanding employment. Others like my father would undergo deep depression and stay in bed for weeks.
But one day, I did set up a business, and one day I did become bankrupt.
It’s been said that bankruptcy happens gradually, and then suddenly. That’s very true. It was my fault for making it gradual because I didn’t face up to my tax bill right away. Although I kept up with my GST, I got behind with my annual returns.
The death of my wife and business partner Wiha had given me different priorities. I was more interested in finding a new life for myself. Every year, a notice from the Inland Revenue Department requested my return. Every year, I did nothing, and so did they. I should’ve known better and didn’t realise that my self-centered concerns would have an impact on others later on.
In time, I created a new life in Ōtaki with my new wife Libby and her vast whānau. I started paying my annual tax again but there was a big backlog. I worked with the IRD to furnish several years’ worth of returns. I appointed my accountant as my tax agent to sort out the mess for me. He assured me my personal circumstances offered a good reason for the IRD to forgive me some of the debt. He made me feel confident.
The day the process server knocked on my door is burned into my brain. He was a bland man, probably deliberately so. No one would ever be pleased to see him. He served me an envelope with demands from the IRD. I was surprised and said my tax agent was dealing with the matter. He looked at me as if I was the most gullible fool on the planet and sneered: “Tax agents are a pack of bastards!” His words curdled my sphincter. I was scared now, and angry that he’d made me question the professional help I’d sought.
Problem is, in my case anyway, he was quite right. My tax agent was a nice chap who’d done an excellent personal job with our accounts for years. But his practice had become part of a huge global firm. I was now just one of many clients lining up for attention. That letter from the tax department was a sign of big trouble to come.
For the next few years, I lived with a fear that never went away. The IRD can empty your bank accounts. If you try to hide any assets, they will find them, sell them, and then punish you for it. They’re trained to be suspicious, and I’m certain there’s good reason for that. I remember one phone call about my case when the builders next door were making a lot of noise. I was politely asked if I was doing renovations on my house.
My greatest anxiety came from the knowledge that the house I lived in belonged to my wife. I was terrified that they’d decide to liquidate her assets to pay for my tax bill. Every time I saw an IRD letter in the mailbox, or an incoming “No Caller ID” phone call, my guts churned with worry. There were plenty of horror stories of people having to sell their family home because of the financial hole they were in.
That bland man remained a part of my life, and he kept turning up. Each new letter was one step closer towards a day of reckoning when all the figures would be added up and there would be negotiations for a settlement. But he never delivered the most important letter. That came by snail mail.
I didn’t know about that letter because I was working away from home. When I returned, I opened it to discover that by 5pm that very day, I had to pay an impossible sum of money to the IRD or make arrangements for payment. I panicked and rang my tax agent to instruct him to deal directly with the IRD before 5pm. I could only leave frantic messages on his phones.
The day of my anticipated negotiations would never arrive. I would never meet with the tax department. My tax agent had a couple of phone calls with them but there was no hint of any concession. The debt, the penalties, and the interest totalled a sum in the high six figures. My modest offer to settle with what I could afford was laughed into court. Mr Bland came to visit once again, this time bearing a summons. The IRD wanted to bankrupt me.
I didn’t want to end up like my father. I was like him in many ways, but I wasn’t proud to resemble him like this.
I asked a couple of lawyers for informal advice because I couldn’t afford to hire them. They saw my case as hopeless. Tax was owed and the debt wasn’t going away. Without payment, society demands utu in the shape of bankruptcy. I then entered the most delusional stage of my journey to insolvency. I thought that I could represent myself in court and get a deal that way.
I went to court twice. Each time, I proved my capacity to speak on my feet before the judge. Each time, I proved that I had no idea what I was talking about. I could speak the truth of my situation and that’s it. The judge was senior, wise, and clearly patient. He asked me why I hadn’t contacted the IRD by the stated time to settle the debt or make arrangements to do so.
In that moment, I realised that my tax agent had indeed missed that 5pm deadline. He hadn’t done his job, but neither had I. I stood goldfishing before the court. My mouth moved but no sound came out. It was over.
From that point onwards, what had been so painfully gradual over so many years became sudden. The court declared me bankrupt and put my financial existence under the control of the Official Assignee for three years.
I had to take stock of my life. Literally. This meant putting a value on everything I owned and letting the OA decide what was to be sold and put towards my debt. That was bad enough, but it was worse to realise that I actually owned bugger-all. My only possessions of value were mountains of books, a flash motorbike, and a grand piano. It wasn’t much to show for four decades of constant work. The tax man got my Harley. I kept my piano.
My finances changed dramatically. The bank I had been with all my life dropped me. I had to function without credit or overdraft. I wasn’t allowed to work for myself. I had to make weekly contributions towards my debt. I couldn’t keep any money I might win or inherit. I needed permission to leave the country. I had to resign from the boards I was on. As my life was deconstructed before my eyes, I discovered my lowly status as a bankrupt.
Bankruptcy is designed to offer creditors a chance to get paid and debtors freedom from their debts. It’s meant to enable the defaulter a chance to clear the slate and start again. But there is a deliberate punitive side to bankruptcy. The punishment is most often expressed as stigma, or a mark of disgrace where you must endure society’s disapproval.
In New Zealand, dozens of individuals are made bankrupt every week. The profile I have in some quarters was enough for a couple of journalists to try and make news out of my self-inflicted misfortune. I soon discovered another consequence of representing myself in court. I didn’t know how to properly refute the suspicions of the IRD that a middle-class professional like me might try to hide my assets. I had nothing to hide, yet some media still felt that the suspicion itself was newsworthy.
When my situation became public, there was an immediate shift in opinion of some people towards me. My wife and family had to stick up for me with those who suddenly had questions about my integrity. Some of my work as a presenter or commentator dried up. I could feel my reputation taking a hit.
I was happy to explain myself to colleagues, individuals, and local iwi who had the right to understand my situation. The disapproval of strangers didn’t worry me. The stigma is real but only if you allow it to be. On the other hand, I got touching messages from a surprising number of friends who’d been through their own bankruptcies. It was something they had kept to themselves.
The stigma of bankruptcy generates secrecy. There is no public awareness or debate about it that might encourage people to be better with their money. These days we can buy many self-help books about how to get rich, influential and powerful. There is nothing about escaping or surviving bankruptcy. It’ll stay like this for as long as fear is considered a better deterrent than knowledge.
I don’t feel any shame for my bankruptcy. My financial sin was getting behind in my tax and being unable to pay it. My first words in court were of apology to the taxpayers of New Zealand for not paying my share. I meant it then and I mean it now. My own instance of shame came when I first couldn’t buy the things I wanted at a supermarket. For the lack of a 20-cent piece I had to return some food.
My shame didn’t come from returning the item because I knew that, sooner or later, I could afford it. My shame came from knowing that there were plenty of people in my own community who’d paid their tax, and who still didn’t have the cash (or credit) to purchase the things they needed and wanted.
I was oddly grateful that in the last week of being insolvent my bag was stolen from a food hall in Auckland. It contained all my money and my debit card. My account was emptied once again. It was my birthday. The following Monday morning when my bankruptcy ended, I started a new life, debt-free, with exactly one dollar in the bank. It made me very happy.
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